This page has been archived and commenting is disabled.
Wisconsin’s Public Pension Problems?
Via Pension Pulse.Dan Bigman of Forbes wants to remind you Wisconsin’s Public Pension Problems Are Your Problem, Too. But are they really or is this more fear mongering? Zach Carter of the Huffington Post reports, Wisconsin's Pension Fund Among Nation's Healthiest:
While Wisconsin Gov. Scott Walker (R) has painted a dire picture of his state's pension obligations, Wisconsin's pension fund for public employees is among the nation's strongest, according to a report by the nonpartisan Pew Research Center*.
The Pew report, issued last year, concluded that Wisconsin is a "national leader in managing its long-term liabilities for both pension and retiree health care." Walker has cited the fund's lack of sustainability as grounds for his plan to revoke collective bargaining rights for state employees, but that proposal has sparked outrage among state employees and drawn tens of thousands of protesters to the state's capitol.
"We're going to ask our state and local workers ... to pay a little bit more, to sacrifice, to help to balance this budget," Walker said in a Sunday interview with Fox News' Chris Wallace, adding that he would be forced to lay off 5,000 to 6,000 state employees if his budget plan was not approved, as well as a comparable number of local public employees.
But the Wisconsin pension fund is simply not in fiscal trouble. Its managers weren't burned by subprime mortgage assets or mortgage-backed securities as the housing bubble collapsed. The fund also relies on an automated dividend system, which pays out benefits in years the system is making gains while restricting payouts in years when it takes losses. And while the pension fund had a rough year during 2008 due to stock market losses, it remains robust, both in terms of fundamental financial stability and in comparison to other state pension programs.
According to the Pew study, Wisconsin had about $77 billion in total pension liabilities in 2008. But according to that same Pew study, those liabilities were 99.67 percent "funded," giving Wisconsin one of the four-highest of such ratios in the nation. Other states had funding ratios as low as 54 percent. For comparison, expert analysts and the Government Accountability Office consider an 80 percent level to be a good benchmark for pension fund stability, while Fitch Ratings considers 70 percent adequate.
Pension accounting relies on a very long-term outlook. When the state calculates its pension liabilities, it adds up the total expected pension expenditures for the entire lifetimes of everybody currently receiving a pension and all employees expected to receive pensions. That outlook routinely eclipses 30 years, depending on the ages of state employees. A $77 billion liability is only a problem if the state has no realistic way of meeting those expenses over that 30-plus year timeframe. But the Wisconsin pension system actually does have the vast majority of that money -- in fact, in 2008, the pension fund had 99.67 percent percent of that $77 billion total on hand. If all of the assets in the fund had simply been sold at market values on June 30, the resulting cash would have been enough to pay 99.67 percent of the state's total pension payouts for decades to come.
According to the Wisconsin pension fund's own 2010 annual report, the system had $69.1 billion in total assets at June 30, 2010, while paying out $3.7 billion in benefits over the course of the previous year. The value of those assets has since risen. According to Dave Stella, secretary of the Wisconsin Department of Employee Trust Funds, the retirement system's assets were worth $79.8 billion at the end of last month. The most recent solvency test for the fund was conducted for the fund's operations at Dec. 31, 2009. At the time, the funding ratio was 99.8 percent. The next solvency test is scheduled for June of this year.
So while Wisconsin does face a $137 million budget shortfall this year, the source of that fiscal trouble is not the state's pension fund. Under the current plan, Walker hopes to generate $30 million this year by raising taxes on public employees -- the governor refers to this as increasing the "contribution" that state employees make to their pension funds.
But Walker could make the state's pension system bear the costs of a broader state budget shortfall -- one created almost entirely by lower tax revenues resulting from the economic downturn -- without raising taxes on public workers or eliminating public bargaining rights. All he has to do is cut a few ties with the financial-services industry.
According to the pension fund's 2010 report, the fund spends about 84 percent of its management costs on outside help -- highly-compensated fund managers who work for private-sector financial firms. While Wisconsin has made a concerted effort to bring more of its fund management in-house, it could do more.
In 2009, roughly half of the pension fund's total assets were managed by state employees, who were paid a total of $28.4 million for their work. By contrast, outside Wall Street professionals were paid $194.7 million to manage the other half of the fund's assets. Cutting Wall Street pay, or simply moving more fund management in-house, could easily generate the $30 million in new taxes Walker wants to assess on state employees.
Wisconsin accounts for its pension fund assets using "mark-to-market" accounting. That means that while the state often expects to hold its assets indefinitely, collecting interest payments until the assets expire, it can't simply add up those expected interest payments to determine the value of an asset. Instead, the fund can only say that the asset is worth what other investors are willing to pay for it at a given moment. If investors want to pay less than the future interest payments, that's too bad for Wisconsin.
While some accounting experts say this market-oriented accounting is a more honest and accurate way to represent asset values than other methods, U.S. corporations are often allowed much more lenient accounting standards. During the financial crisis, for instance, many banks balked at the suggestion that they be required to account for subprime mortgage bonds at the prices that people were actually willing to pay for them. Instead, they argued, banks should be allowed to account for these items based on secret company economic models. If Wisconsin and other pension funds were simply cut the same slack that the government cut for Wall Street, it's easy to imagine pension fund worries easing, even in states whose pension situations are more dire.
[*Correction: Sarah Jorgenson of The Pew Charitable Trusts sent me this correction: We saw your Wisconsin pensions article today and wanted to flag an inacurracy. Zach Carter of the Huffington Post misattributed Pew's report, "The Trillion Dollar Gap," to The Pew Research Center. The report was issued by The Pew Center on the States, a division of The Pew Charitable Trusts. The Pew Research Center is a separate, independent subsidiary.]
I agree with Mr. Carter, public pension funds should be cut some slack but in some cases like in Oklahoma where state Treasurer Ken Miller warned that state pensions are at a "crisis level", more drastic reforms need to be taken.
I also agree that Wisconsin's pension fund is in decent shape and they should move more assets in-house to save some fees. On that front, I noticed that Wisconsin's public pension fund recently made its first investment in a hedge fund, allocating $100 million to Capula Investment Management. This might be because they don't have internal expertise to implement such a strategy but they can cut fees elsewhere.
You'll also recall that Wisconsin leveraged up its bond portfolio, a strategy that others were tinkering with. If done properly, it can be a source of leveraged beta by ramping up fixed income to get equity-like returns, but it can also present additional risks that will come back to haunt them. Pensions should carefully think through the ramifications of implementing such a strategy.
Finally, state workers across the US are understandably worried about what's going on in Wisconsin (watch video below). As labour unrest spreads, expect some major showdowns ahead. This has the potential to get very ugly, very quickly.
»
- advertisements -
So you're against this proposal because someone might propose a different proposal next year......absurd logic on why the existing proposal lacks merit.
The government (with the fullest of union financial support) is the one who put in place the existing pay packages -- which are fantasy land. So when a different group in government reduces the fantasy pay packages, they are wrong?
Surely if the majority of Wisconsin voters think this is wrong, they will vote out those in favor of the current proposal and seek to reinstate existing rules. But I would not bet on it. Good luck in your world.
Wouldn't we be able to guess how anyone writing for Forbes or Bloomberg feels about collective bargaining rights? Would we expect an honest assessment of the reasons behind the budget "shortfalls" or the amount of blame to be placed at the feet of the public workers and their pension plans? Would we expect the role of the big banks in our state's budget crises to get a free pass?
But the most important question....Why are we surprised that Republicans are acting like Republicans? They've wanted to do these things for 100 years, and now they feel entitled. And why not? Look at the money available to them. Look at the massive organization behind them. Even if these radical conservatives represent about 18% of the eligible electorate, this 18% is rich, powerful, and motivated.
First of all don't play that con game rhetoric here. It doesn't wash. Public service unions are no different than the vipers of Wall Street exercising their POWER. It ain't about workers' rights it's about specific workersc empowered and permitted to extort their demands from people they purport to protect. And yes, the democrats can take most of the blame but republicans too have let them slide for decades
Total fucking bullshit. Public workers should never have been permitted unionization. The nonsense that they work to protect the little people is an out and out lie.
And it's about time someone called them to account.
"....Even if these radical represent about 18% of the eligible electorate, this 18% is rich, powerful, and motivated".
Gee. That sounds just like the perfect description of the union workers.
Wisconsin taxpayers have voted their side of the collective bargaining table.
Bargaining suggests a conversation between two sides -- employer and employee. The middleman in public service unions, the politician, in prosperous times allows the unions all of their demands.
But now that times are tough, the union would rather protest than bargain by having the Democrats actually represent their collective employer, the taxpayers, by returning to the statehouse and voting on the issue.
These collective bargaining tragedies happened infrequently in the past because most states did not allow public employees to unionize. Many states still today, especially in the South, do not allow collective bargaining by public service unions.
Soaring costs in public employee pensions in San Jose, California, already have cut services to residents and are frustrating true fiscal reform efforts. This is the city’s 10th straight year of red ink…
SJ Mayor Chuck Reed has called for smaller pensions for future city hires, but now says current employees must consider “substantial pension reductions to keep the city from sliding into insolvency.”
The mayor received overwhelming approval for pension reform on the November ballot.
Reed wants to:
· Raise the current “full retirement” age of 50 for police and firefighters and 55 for other city employees
· Eliminate the city’s guaranteed 3 percent annual pension rises, six-figure sick-leave cashouts for retirees and retirement “bonus checks” which persist despite the city’s multibillion-dollar shortfall in the pension funds.
Voters overwhelmingly approved a November measure allowing the city to reduce pension benefits -- some paying nearly full salary and full scale health care.
Promise you won't cry us all a river of angsty tears when these folks actually use their sick days, will you?
My spouse (retired teacher age 65) receives $3,500/mo pension from Wisconsin. Its value was determined by her account balance. This balance was built up by about 10% per year contributions - half from her and half from the school district. She was permitted to allocate the funds among investment option. Her pension can go up or down.
Thanks for the info.
The outrageous claims being made regarding pension benefits to the average WI public employee (teachers in particular) is paranoia induced to deflect who the real culprits are.
I know a few WI public service retirees myself and they are recieving no where near the fantasy nos. tossed around here on ZH--even after 30 years of service.
I understand Leo's leftist ideology, and he is certain welcome to it. But the other side of the coin is that home owners on fixed incomes are being screwed by rising property taxes. The fact that public service employees in my area received 5-7% mandated increases per contract this year, when local unemployment is close to 20%, is quite rediculous.
I'm not a leftist or socialist. I believe in capitalism with rules, meaning you don't game the system to enrich yourself. As for public pension funds, they're being attacked by powerful interests to weaken them just like private sectors workers have been decimated over the years, all in an effort to keep wages down. There is abuse but it's minor compared to the abuse on Wall Street. Don't be fooled into thinking that we have to dismantle public pension funds. This is pure nonsense.
Bullshit on almost all counts.
Really? Check this video out... then get back to us... lol!
http://www.youtube.com/watch?v=WBnSv3a6Nh4
And what exactly is wrong with crushing public unions?
Spoken like a good little useful idiot... maybe David Koch will take you along to "Cali" with the Governor for a "real good time"... oh sorry, that was just in the governor's dream world... gone, along with his political ambition.
You're on the wrong side of this fight. You'll see soon enough.
Certainly if you are a banker anyway. Let the system crash, then proper compensation will return to those who are actually worth a shit.
Nah, I'm no banker, but in hindsight using the phrase "almost all counts" was too broad. I should have said the first sentence of his post and the last 2. The stuff in the middle doesn't trigger a reading on my bullshit detector.
This is all you need to know about Leo;
by Leo Kolivakison Tue, 02/22/2011 - 08:32
#984707
"You're thinking near term. If you have another crisis and unemployment shoots up, deflation in the US is a real possibility. And one more thing, Keynes was a genius, among the greatest geniuses of the 20th century.To ridicule him or lump him together with neo-Keynesians just shows how ignorant you truly are of the man, his work, and his stature. If you want to read delusional economists, go read all those Nobel-prize winners at the Chicago school. Those market maniacs were much more influential and managed to screw up your country's economic policy for years."
He never answered me...so I really don't know if he meant evil genius or righteous genius...LOL.
Genius as you wouldn't be able to be in the same room as Keynes and follow his thought process. Anyone who has taken a rigorous history of economic thought class understands what I'm talking about. Keynes, Hicks, Samuelson, Friedman and a few others were geniuses but Keynes was in a league of his own. Don't waste my time with cookie jar economics. I have no patience for morons who think Keynes was a fool. You're just embarassing yourself.
"Genius as you wouldn't be able to be in the same room as Keynes and follow his thought process."
No doubt about that Leo...I'd run out of the room screaming as all available evidence shows...LOL...or are you in the camp that we didn't "stimulate" enough like other "noted economists"?
Just up thread you were damning neo-Keynesians now you cite them?...how many cookie jars are you going to pull from?
Hayek critiqued his "theory" when he came out with it. Likewise, the 1970's recession should have destroyed any last vestiges of it with unemployment numbers as they were and amounts of "stimulus" applied. Yet, we did it again didn't we?
Look around you Leo...where we are is a direct result of ahering to a Keynes "theory" applied to what was a free market. You and he should be quite happy with the results...the debt incurred was not factored into any Keynesian mathematical theory for repayment was it?
Math without logic is no answer Leo.
Home owners and renters alike. The renter just wont know why they have to move.
Ironic that the unrest here begins with the class that receives the best benefits and who's average annual salary is higher than those that make their payroll.
Only in America.
The class who receives the best benefits and highest average salary isn't in Wisconsin. It's the one who's trying to break unions across the country.
Last I checked they can't vote in Wisconsin.
Actually, you are not totally correct. Wisconsin has loads of voter fraud. That's why the currently elected (and participating) state congress is trying to pass a voter-ID law.
Kock Bros. bought Walker so they could get State IDs and vote!
/s
Oh bullshit, bullshit, bullshit. You 'conservatives' only think there is voter fraud because you would like to do it yourselves.
there is no effective voter fraud going on in the US. The only fraud seems to be within the Supreme Court.
How would you know? In Wisconsin, I can vote as anybody. I just walk in, tell the elderly lady or gentleman a name, if that name exists as a registered voter, then I get a ballot. Then, I could go to another precinct and do it again. Even better, if I am a "student", I walk in with a utility bill and get a ballot. Doesn't matter if a I am a Wisco resident or not. I could vote in a couple of different states if I wanted. So no one can tell me they know there is no fraud until obvious means of undetectable fraud are removed.
Why, in a nation where the "vote is so precious", would we not take every precaution to make sure a vote is valid?
Doesn't stop them from buying politicians in Wisconsin or raping the pensions that they manage.
Can you be bought ?
"The class who receives the best benefits and highest average salary isn't in Wisconsin."
Wall Street bankers or DC pols?...& link please ;-)
>>>snark on<<<
I didn't know the billionare Koch Bros. themselves were marching on the Capitol protesting Walker's failure to deliver state assets at no-bid and no-review.
Yeah, that pathetice Tea Party demo over the weekend no doubt cost them a bundle and only turned out 1,000-3,000 stooges (hard to even estimate the no. as they were dwarfed by the large protest numbering 70,000-80,000.)
>>>snark off<<<
Dude (or lady...whatever). Have you seen those protestors? They are now rank. Some are sleeping in the capitol buiding (against the rules, but Walker allows it...how does that fit in your paradigm?), many have not showered for who knows how long. Why the hell would I want to go up to Madison to "protest" against them?
I already voiced my opinion. It matched a (significant) majority in the state. We did this wierd thing. We voted. And we voted for this. So fuck off already.
The bottom line is that almost everyone is missing the point. This is about the taxpayers begging politicians to remove themselves as the puppets of the public unions. Taxpayers are not represented in the bargaining process. I don't care if the public employees offer to go without freaking pay for the next year. IT WILL NOT SOLVE THE LONG TERM PROBLEM OF EVERY OTHER FUCKING POLITICIAN BUYING VOTES BY GIVING PUBLIC EMPLOYEES MONEY THEY DON'T HAVE/DESERVE.
This is about the taxpayers begging politicians to remove themselves as the puppets of the public unions
I just wanted to repeat that statement.
Total crap, it should be "taxpayers begging the politicians to remove themselves as puppets for the central banking cartel."
None of the structural problems with our economy have been fixed. Let it all collapse, then proper compensation will return to those of you that are actually worth a shit.
Now, now. It is not total crap. In fact, it is very clearly true. Don't let what you want blind you to other truths.
The "Santelli Tea Party" had it right. Yes to my idea AND yes to yours. We beg government to remove themselves from just about everything!
Tool. We have structural problems and corruption from top to bottom. The parasites (CBs, politicians, unions) have almost killed their hosts and are now fighting with one another for that last drop of blood.
You're fighting for the things that are killing you, unless you are one of the above mentioned parasites.
Yes, you are a parasitic tool.
The local Progs. have been reffering to the demonstrations at the Capitol as "little egypt".
More aptly called: Little Athens
http://www.zerohedge.com/article/new-general-strike-paralyzes-greece-100...
why does this seem like bernies m.o.....the entire world is showing stress cracks....there appears to be strong evidence of monetary collapse...everybody is taking cover...wisconsin has continued to out smart them all...or???
Leo, if being required to contribute more to your own retirement was a " tax", then the state could spend the money on roads or solar or...
LOL...exactly.
State employees in Wisconsin pay nothing into their own retirement fund...it's all borne by the taxpayer as of now.
In the city I live in, (used to be 150,000), now 50,000, municipal employees pay ZERO health, have paid sick leave, Holidays out the ying/yang, retire after 24 years with the last years earnings as their retirement, STILL has the same number of employees, has a 1% payroll tax for everyone that works in the city limits(even if you don't work there, but your headquarters/main office is located there, nickel and dime taxes all across the board, potholes galore, etc., etc. We need to Kmart this shit and roll the cost's back. Who the fuck is serving who here? AND I was a UNION MEMBER for 33 years!!
Abolish all public employee unions. FDR was against them for good reason..
If the pension is adequately funded then it seems like the Gov is just trying to bust the Democratic Base. If he was truly serious about Pension reform, why didn't he include Police and Firefighters in the "reforms"?
That's a good question.
The answer is he needed LE muscle in case things got/get ugly.
The problem for Walker now is that many police and firefighter locals are supporting the other union employees.
And a bigger problem looms. The Wisconsin Law Enforcement Asso. which has state police and troopers as members is turning on him.
They know Walker lied. They know they're next.
See http://www.wlea.org/ excerpt below-
To – WLEA Members From – WLEA Executive Board (Message 2)The Governor’s proposal for modifying (or complete dismantling, depending on your viewpoint) the collective bargaining language for government employees contains more provisions that are intended to cost employees more in the long run.
When he was Candidate Walker, he never talked publicly about union dismantling during the campaign. As Governor Elect Walker, he brought the subject up publicly during a luncheon at the Milwaukee Press Club on December 7, 2010. It was reported in many papers across the state. His anti-union stance wasn’t a surprise, but the introduction of this radical change caught many people off guard, including people who actually voted for him during the election. http://www.jsonline.com/news/statepolitics/111463779.html
The reason the police and fire unions weren't targeted is because they were the only unions that supported Walker in the election.
Yes, that too.
And I wonder how LE will feel when they find out Walker himself considered sending in "troublemakers" to incite violence and purposefully place them in danger.
http://www.thedailypage.com/daily/article.php?article=32414
Violence as strategy to end the protests is something to think about....Hmmm....
Maybe violence is not a good idea...or so learns an AG the hard way.
[Note: There's has been no violence at the WI State Capitol. Overall this has been very peaceful with only 10 or so arrests since the protest start. That's on average what Madison PD would haul in at a Badger's game.]
WTF ! Unions are supporting unions! I'm shocked. /